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MedPAC Urges Changes with Insurer-Run Medicare, 340B Drug Plan

By Kerry Young, CQ Roll Call

March 15, 2016 -- The Medicare Payment Advisory Commission (MedPAC) on Tuesday recommended lawmakers take on several powerful health industries by reshaping Medicare policies, including ones that may let insurers and rehabilitation hospitals gain excess payments by depicting their elderly and disabled patients as being more ill than they actually are.

MedPAC released its annual March report to Congress, a document closely watched by lawmakers and officials who oversee the program. Medicare, one of the federal government's biggest expenses with outlays topping $600 billion a year, serves more than 53 million people. MedPAC is an influential source of nonpartisan analysis, with commissioners from academic and industry backgrounds.

MedPAC’s earlier public deliberations on the recommendations in the March report drew the ire of hospital and physician groups due to a proposed change in the use of savings from the 340B discount drug program. The panel also recommended keeping payments flat next year for six services with more than $75 billion in combined annual reimbursements from the traditional Medicare program: long-term care hospitals, hospice, ambulatory surgical centers, skilled nursing facilities, home health care, and inpatient rehabilitation centers.

Lawmakers are showing increased interest in MedPAC’s findings, with Congress under pressure to find savings within federal programs, said Dan Mendelson, the president of Avalere Health, who earlier served as associate director of health at the Office of Management and Budget in the Clinton administration. This hunt for offsets will lead many staffers, including those on presidential campaigns, to closely read the March report, he said.

"It’s the imprimatur that lawmakers need to protect themselves" against backlash from groups representing industries that stand to lose money through policy changes, Mendelson said in a Monday interview. "A MedPAC report is a flak jacket."

It often can take a while for Congress or Health and Human Services officials to act on the panel’s recommendations, but its influence was seen in recent health laws. The Affordable Care Act took steps to reduce what had been seen as excess payments to insurer-run Medicare Advantage plans compared to the costs for the traditional government-run program, an approach MedPAC had urged for years. MedPAC had strongly recommend a shift away from the fee-for-service approach to paying doctors for caring for people on Medicare, which sometimes resulted in needless duplication of services and procedures. Congress last year passed a major Medicare physician pay overhaul (PL 114-10), mandating the creation of a system with stronger links between reimbursements and judgments about the quality of care delivered.

Much of the focus on MedPAC’s work centers on a drive for greater coordination of care of the people enrolled in the program, said Keith Snider, director for health policy at the firm Health Policy Source, Inc. In many cases, MedPAC members argued that new policies may better serve patients while reducing or restraining cost growth.

"There's obviously a lot of interest in those kinds of reforms on the Hill," Snider told CQ HealthBeat. "Not all of MedPAC's recommendations are accepted, but their work is respected in this town even when people disagree with their conclusions.

The recommendations that MedPAC is highlighting from its March report include proposals that would affect:

  • Inpatient rehabilitation facilities: Congress should direct the Department of Health and Human Services (HHS) to analyze the coding used to set payments for people treated in specialty hospitals known as inpatient rehabilitation facilities. A new MedPAC analysis raised questions about how patients are evaluated by some of the rehabilitation centers. Some centers with high Medicare profit margins appear to have a pattern of categorizing patients being admitted as being more functionally disabled than another similar treatment center might.
  • 340B drugs: Congress should direct HHS to reduce Medicare payments for drugs purchased by hospitals through the 340B discount program by 10 percent of the average sales price. Savings from this program, which can shave a third off the cost of medicines, would go to a pool to pay for uncompensated care. Hospitals that participate in the program have opposed bids to put conditions on how they can apply savings. Policy analysts see the deep discounts available through the 340B program as a driver in hospitals' acquisitions of private medical practices, which in turn raises costs for Medicare. The program pays for more services delivered in what are classified as hospital outpatient departments than it would if they were provided in a private medical office.
  • Medicare Advantage plans: Congress should direct HHS to develop a risk adjustment model that uses two years of data from traditional government-run Medicare and from the insurer-run Advantage plans, seeking to account for differences in the assessment of patients’ health in bill coding. 

Of particular concern to MedPAC are cases where a disease may be reported in a health risk assessment, but not subsequently treated. "If conditions are documented without services being provided to treat the condition, current policy may result in increased payments to MA organizations by an amount that is greater than the benefit provided to the Medicine beneficiaries," MedPAC wrote in the March report.

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